RBI Imposes Rs4.5 Crore Penalty on IndusInd Bank; Shriram City Union Penalised Rs5 Lakh
The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs4.5 crore on IndusInd Bank for violating norms such as ‘exposure norms’, ‘prudential norms on income recognition, asset classification and provisioning pertaining to advances’, etc.
The RBI release mentions that ‘SPARC – monitoring of information submission by bank’, ‘creation of a central repository of large common exposures – across banks’, ‘central repository of information on large credits (CRILC) – revision in reporting’, and ‘disclosure in financial statements- notes to accounts’ were also among the other norms violated by IndusInd Bank.
RBI reported that the violations were discovered during the statutory inspection of the Bank with reference to its financial position as on 31 March 2019. Additionally, the Risk Assessment Report (RAR) too exposed non-compliance with certain directions issued by RBI.
A show cause notice was issued to the Bank to explain why penalty should not be imposed for its failure to comply with the directions issued by RBI. However, RBI decided to impose a monetary penalty on the bank, to the extent of non-compliance with the directions after considering the bank’s reply to the notice, oral submissions made during the personal hearing and examination of additional submissions.
However, the central bank clarified that the penalty has been imposed on the basis of the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the Bank with its customers.
On 23rd September, RBI had also imposed a penalty of Rs5 lakh on Shriram City Union Finance (SCUF) for non-compliance with its directions on verification of the ownership of gold jewellery contained in Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 and on reporting of frauds contained in Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016.
RBI added “This penalty has been imposed in exercise of powers vested in RBI under the provisions of clause (b) of sub-section (1) of section 58 G read with clause (aa) of sub-section (5) of section 58B of the Reserve Bank of India Act, 1934, taking into account the failure of the company to adhere to the aforesaid directions issued by RBI.”
Sources say that the matter relates to the annual inspection of SCUF by RBI for FY17-18. RBI was of the opinion that SCUF had been remiss on the following two fronts:
• Inadequate records for ownership of gold against which certain gold loans were granted: In accordance with RBI rules, NBFCs shall keep a record of the verification of the ownership of the jewellery against which loans are granted. The regulator was of the opinion that SCUF had not observed the same in certain cases, despite the loans having been repaid on schedule and the field inspection reports, KYC documents and other records having been maintained. The Chennai-based NBFC (non-banking financial company) had explained to RBI that in India it is difficult for gold owners to produce receipts for jewellery, which is often handed down over generations. But RBI preferred to treat this as a contravention of rules.
• Delayed reporting of fraud for certain personal loans: This matter pertained to FY10-11 when six personal loans were granted to Chennai Port Trust employees with the guarantee of co-employees of SCUF in the course of business and subsequently they turned delinquent. As a part of the recovery process, on execution of arbitration order and further enquiry, it was revealed that the guarantors had not guaranteed the said loans. Thus the recovery proceeds were dropped by SCUF and the respondents had also provided SCUF with their letters of satisfaction with regard to the resolution of their complaints. As the loan transactions were genuine, SCUF did not classify the transactions as fraud and hence did not deem it fit to be reported as such to RBI. However, RBI opined that the matter should have been considered as one of cheating and forgery and required that it be reported.
SCUF did subsequently report the matter to RBI, but since such reporting was delayed, RBI decided to impose a monetary penalty.
The NBFC has reiterated its stated policy to be a fully compliant NBFC. The NBFC also said that wherever required, corrected processes have already been put in place.